Solving General Equilibrium Models with Incomplete Markets and Many Assets

This paper presents a new numerical method for solving general equilibrium models with many assets. The method can be applied to models where there are heterogeneous agents, time-varying investment opportunity sets, and incomplete markets. It also can be used to study models where the equilibrium dynamics are non-stationary. We illustrate how the method is used by solving a one-- and two-sector versions of a two--country general equilibrium model with production. We check the accuracy of our method by comparing the numerical solution to the one-sector model against its known analytic properties. We then apply the method to the two-sector model where no analytic solution is available.